Transcript Fiscal Aspects of PRGF-Supported Programs: Are they Consistent

Fiscal Aspects
of IMF-Supported Programs in
Low-Income Countries
Sanjeev Gupta
Fiscal Affairs Department
January 28, 2003
IMF-Supported Programs in LowIncome Countries

ESAF transformed into PRGF in
November 1999

A change in the content of programs



More pro-poor and pro-growth
Increased emphasis on country
ownership of programs
Better definition of IMF’s role

Laid out in the Key Features of the PRGF
2
IMF-Supported Programs in LowIncome Countries

Of the seven key features of PRGF-supported
programs, four are related to fiscal policy:




Budgets that are more pro-poor and progrowth
Ensuring appropriate flexibility in fiscal targets
Measures to improve public resource
management/accountability
Poverty and social impact analysis (PSIA) of
major macro adjustments/structural reforms
3
IMF-Supported Programs in LowIncome Countries

The other three key features are:



Broad participation and greater ownership
Embedding of the PRGF in the overall
strategy for growth and poverty reduction
More selective structural conditionality
4
Sample and Methodology


35 countries were reviewed based on
programs approved or reviewed by the
Executive Board between July 1, 2000 and
September 30, 2001
The sample includes


19 countries with new, three-year PRGFsupported arrangements
16 countries with transformed PRGF-supported
arrangements
5
Sample and Methodology

The analysis focuses on the extent to which
program design in PRGF-supported programs has
been consistent with the key features


The process of transformation from the ESAF to
the PRGF is ongoing and still at an early stage.
An attempt has been made to evaluate outcomes
relative to objectives wherever data were
available. Some presentation on outcomes goes
beyond what was presented to the IMF Board.
6
First Key Feature: Budgets That Are
More Pro-Poor and Pro-Growth

More Pro-Poor Budgets

Broad-brush changes in expenditure
composition
Both actual and projected spending in
education and health care are to rise as
a share of GDP and total spending
 Real spending per capita on education
and health care is projected to rise

7
Education Spending in PRGF-Supported Programs: 1999 - 2001/2002
(In percent of GDP; number of countries in parentheses)
1999 (Pre-PRGF) 1/
2000 2/
2001-02 3/
5.0
4.0
4.5
4.3
4.5
3.7
3.9
3.8
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
All PRGFs (26)
All PRGFs (29)
New PRGFs (15)
Sources: National authorities; and IMF staff estimates.
1/ In most cases, the pre-PRGF year is for 1999.
2/ 2000 refers to actual expenditure level for that year.
3/ 2001-02 refers to the average projected spending level for 2001-02.
8
Health Spending in PRGF-Supported Programs: 1999 - 2001/2002
(In percent of GDP; number of countries in parentheses)
1999 (Pre-PRGF) 1/
2000 2/
2001-02 3/
2.5
2.2
2.1
2.0
1.7
1.8
1.8
1.8
1.5
1.0
0.5
0.0
All PRGFs (26)
All PRGFs (29)
New PRGFs (15)
Sources: National authorities; and IMF staff estimates.
1/ In most cases, the pre-PRGF year is for 1999.
2/ 2000 refers to actual expenditure level for that year.
3/ 2001-02 refers to the average projected spending level for 2001-02.
9
Education Spending in PRGF-Supported Programs: 1999 - 2001/2002
(In percent of total government spending; number of countries in parentheses)
1999 (Pre-PRGF) 1/
2000 2/
2001-02 3/
20.0
18.0
16.0
14.8
15.6
16.7
15.2
16.4
15.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
All PRGFs (26)
All PRGFs (29)
New PRGFs (15)
Sources: National authorities; and IMF staff estimates.
1/ In most cases, the pre-PRGF year is 1999.
2/ 2000 refers to actual expenditure level for that year.
3/ 2001-02 refers to the average projected spending level for 2001-02.
10
Health Spending in PRGF-Supported Programs: 1999 - 2001/2002
(In percent of total government spending; number of countries in parentheses)
1999 (Pre-PRGF) 1/
2000 2/
2001-02 3/
10.0
9.0
8.0
8.2
7.1
7.3
7.9
7.4
6.6
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
All PRGFs (26)
All PRGFs (29)
New PRGFs (15)
Sources: National authorities; and IMF staff estimates.
1/ In most cases, the pre-PRGF year is 1999.
2/ 2000 refers to actual expenditure level for that year.
3/ 2001-02 refers to the average projected spending level for 2001-02.
11
Annual Change in Real Per Capita Education Spending
in PRGF-Supported Programs
(Number of countries in parentheses)
Pre-PRGF
10
2001-02
9.2
9
8
7
6
5.4
5.7
5.0
5
4
3
2
1
0
All PRGFs (28)
New PRGFs (15)
12
Annual Change in Real Per Capita Health Spending
in PRGF-Supported Programs
(Number of countries in parentheses)
Pre-PRGF
2001-02
12
10.9
10.4
10
8.0
8
6.3
6
4
2
0
All PRGFs (25)
New PRGFs (12)
13
First Key Feature: Budgets That Are
More Pro-Poor and Pro-Growth

More Pro-Poor Budgets

Poverty-reducing spending identified in
PRSPs

Both actual and projected spending are
increasing
14
Poverty-Reducing Spending in PRGFs
(In percent of GDP; refers to actual data; number of countries in parentheses)
Pre-PRGF Year
Latest Year
10.0
8.8
9.0
8.0
7.5
7.0
7.1
6.2
6.0
5.0
4.0
3.0
2.0
1.0
0.0
All PRGFs (19)
Source: National authorities; and IMF staff estimates.
1/ In most cases, the pre-PRGF year is 1999.
2/ Latest year refers to actual data for 2000, in most cases.
New PRGF (6)
15
Poverty-Reducing Spending in PRGFs
(In percent of total government spending; refers to actual data;
number of countries in parentheses)
Pre-PRGF Year
Latest Year
35.0
29.9
30.0
26.4
25.0
19.9
20.0
18.1
15.0
10.0
5.0
0.0
All PRGFs (19)
Source: National authorities; and IMF staff estimates.
1/ In most cases, the pre-PRGF year is 1999.
2/ Latest year refers to actual data for 2000, in most cases.
New PRGF (6)
16
First Key Feature: Budgets That Are
More Pro-Poor and Pro-Growth

More Pro-Growth Budgets

Higher spending on human capital
formation; shifts in public spending from
current to capital outlays; and efficiencypromoting tax reforms
17
First Key Feature: Budgets That Are
More Pro-Poor and Pro-Growth

Results should be seen as tentative, given
constraints in tracking pro-poor spending:



Existing budget classification systems do not allow
for precise matching of expenditure allocations
with poverty-reducing programs identified in
PRSPs
Additionally, there are other weaknesses in public
expenditure management (PEM) systems that
prevent tracking
Data on social outcomes not yet available
18
First Key Feature: Budgets That Are
More Pro-Poor and Pro-Growth


Spending increases must be accompanied by
improvements in efficiency and targeting
Three-fourths of PRGF-supported programs
contain such measures
19
First Key Feature: Budgets That Are
More Pro-Poor and Pro-Growth



Over half target improvements in the efficiency
of spending by reducing waste or allocating a
higher share of spending to critical inputs (e.g.,
textbooks and medicines)
About one-third seek to reallocate spending to
more productive activities (e.g., primary
education)
About one-third aim to improve the targeting of
spending so that the poor receive a higher share
of benefits
20
First Key Feature: Budgets That Are
More Pro-Poor and Pro-Growth

There is substantial scope to improve the
quality and specificity of expenditure advice in
PRGF-supported programs


As more countries move to full PRSPs, there will
be opportunity to fully articulate specific measures
Full PRSPs will provide occasion to more fully
integrate the policy advice from development
partners, such as the World Bank’s Public
Expenditure Reviews (PERs)
21
Second Key Feature: Appropriate
Flexibility in Fiscal Targets

Flexibility can be assessed in three ways:
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(Aspect 1) Does the fiscal framework permit
higher public spending to accommodate the
government’s poverty reduction strategy?
(Aspect 2) Are targets for the budget deficit
allowed to bend when foreign financing or
revenues are different than anticipated?
(Aspect 3) Were alternative fiscal adjustment
paths discussed with country authorities?
22
Fiscal Frameworks (Aspect 1)
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PRGF-supported programs accommodate
higher public expenditures
PRGF-supported programs have deficit
targets that are similar to those under the
preceding ESAF-supported programs;
however, the deficit targets excluding grants
are higher
Due to higher external financing, revenues,
and grants, PRGF-supported programs were
targeted to rely no more on domestic
financing than ESAFs
23
Fiscal Targets in PRGF- and ESAF-Supported Programs
(Unweighted averages; in percent of GDP)
Under the PRGF
3-Year
Pre-Program
Program
Year
Average
Total revenue and grants
Revenue
Grants
Total expenditure and net lending
Primary expenditure
Overall balance (commitment basis)
Arrears
Overall balance (cash basis)
Overall balance (cash basis) excluding grants
Deficit financing
Domestic
Bank
Non-Bank
Privatization
External
20.3
17.1
3.2
23.6
21.6
-3.3
-0.1
-3.5
-6.7
3.5
0.9
0.1
0.2
0.4
2.6
21.4
17.9
3.5
24.4
22.5
-3.0
-0.5
-3.6
-7.0
3.6
-0.2
-0.6
-0.1
0.6
3.7
Under the ESAF
3-Year
Pre-Program
Program
Year
Average
19.4
16.3
3.1
22.8
20.0
-3.5
-0.3
-3.8
-6.6
3.8
1.0
0.3
0.3
0.2
2.8
20.3
17.3
3.0
23.2
20.6
-2.9
-0.4
-3.4
-6.2
3.4
-0.2
-0.7
-0.1
0.3
3.6
24
Fiscal Frameworks (Aspect 1)

Countries that have achieved some degree
of fiscal stabilization (“post-stabilization
countries”) incorporate larger increases in
public expenditure and the deficit

This group includes those that (1) achieved a cash
deficit of less than 2 percent of GDP (after grants) in
1999; (2) had inflation of less than 10 percent in 1999,
and projected inflation below 10 percent in 2000-02;
and had positive economic growth in 1999. It
comprises Azerbaijan, Benin, Cambodia, Cameroon,
Macedonia, Mauritania, Mozambique, Senegal,
Tanzania, and Uganda.
25
Fiscal Frameworks (Aspect 1)


Targeted revenue increases under PRGF tend
to be less ambitious in post-stabilization
countries
This may reflect healthier revenue generation
prior to the start of the PRGF program
26
Fiscal Frameworks (Aspect 1)


Total revenues are expected to rise by
about ¾ percentage point of GDP
Domestic revenue mobilization less
prominent than under the ESAF


HIPCs target only half the increase that was
present under last ESAF
Most tax measures focus on consumption
and trade taxes rather than income and
property taxation
27
Fiscal Frameworks (Aspect 1)


A wide array of measures to strengthen
tax administration, majority of these
focus on domestic tax system
Less conditionaility on tax measures
than under ESAF (2 to 3 against 3
under ESAF)
28
Fiscal Frameworks (Aspect 1)

Fiscal Outcomes


For 28 countries, compared to the program
targets, overall deficit was broadly on track in the
first program year, although there was a shortfall
in capital spending and revenues
The average numbers mask differences across
countries in achieving the program targets


Up to 18 countries experienced a shortfall in both total
expenditures and in revenues
12 countries had higher than programmed deficit
29
Fiscal Frameworks (Aspect 1)

Fiscal Outcomes (cont’d)

In the second program year, the overall
deficit was higher than programmed

Traceable to higher primary current expenditure
30
Fiscal Targets in PRGF-Supported Programs
(Unweighted averages; in percent of GDP)
Pre-PRGF
First Year
Year
Program Actual
All countries
Total revenue and grants
Revenue
Grants
Total expenditure and net lending
Primary expenditure
Overall balance (commitment basis)
Arrears
Overall balance (cash basis)
Overall balance (cash basis) excluding grants
Deficit financing
Domestic
External
20.2
16.3
3.4
23.7
21.8
-3.5
-0.1
-3.6
-6.9
3.6
1.0
2.6
21.3
17.0
3.9
24.3
22.5
-3.0
-1.0
-4.2
-8.0
4.3
-0.1
4.3
21.0
16.5
4.0
24.1
22.2
-3.2
-0.6
-3.8
-7.6
3.8
0.8
3.0
31
Fiscal Targets in PRGF-Supported Programs
(Unweighted averages; in percent of GDP)
Pre-PRGF
Second Year
Year
Program Actual
All countries
Total revenue and grants
Revenue
Grants
Total expenditure and net lending
Primary expenditure
Overall balance (commitment basis)
Arrears
Overall balance (cash basis)
Overall balance (cash basis) excluding grants
Deficit financing
Domestic
External
21.2
16.5
4.7
24.5
23.3
-3.4
-0.1
-3.4
-8.1
3.4
1.2
2.2
21.6
17.0
4.6
25.5
24.4
-3.9
-0.3
-4.2
-8.7
4.2
-0.1
4.3
21.6
16.8
4.9
26.6
25.5
-5.0
-0.3
-5.3
-10.1
5.3
1.8
3.4
32
Flexibility in accommodating changes
in financing or revenues (Aspect 2)

PRGF-supported programs show greater
flexibility than ESAFs in accommodating
unanticipated changes in foreign
financing


One-third of new PRGFs contain adjustors that
allow higher spending if foreign financing
higher than anticipated (Adjustors are also
there to cover shortfalls in foreign financing)
Relatively few, however, indicate “contingent
expenditures” to be increased in case
additional foreign financing is secured
33
Flexibility in accommodating changes
in financing or revenues (Aspect 2)

Fiscal Outcomes


Domestic financing was higher in light of shortfalls
in foreign financing in both years
For the first year, adjustors were included in
almost all programs




Only in 2 cases were adjustors relevant for completing
the first review
9 countries met their program targets
4 programs went off-track even though 12 countries had
higher than programmed deficit
10 countries were granted waivers in fiscal related areas
(net credit to government) even after adjustors came
into play
34
Alternative Fiscal Paths
(Aspect 3)

PRGF documents do not always report on
discussions with the authorities on fiscal
policy choices and their impact on the poor—
pointing to need for more PSIA (see below)
35
Third Key Feature: Improving Public
Resource Management/Accountability

Almost all PRGF-programs place strong
emphasis on improving PEM


Average 4-5 measures per program or
review, over half subject to conditionality
Major area of concentration budget
execution, but also a large number of
measures in budget formulation and
reporting
36
Reporting and
Review
Budget
Execution
Budget
Formulation
PEM Measures in PRGF-supported Programs
(Number of measures per country)
Budget coverage and classification (13)
Tracking poverty-reducing expenditure (10)
Budgeting procedures (17)
Expenditure procedures (30)
Treasury system (22)
Arrears and debt management (21)
Expenditure Reporting (12)
Auditing (19)
Other governance (15)
0.0
0.5
1.0
1.5
2.0
37
Third Key Feature: Improving Public
Resource Management/Accountability

But a substantial agenda of reform remains

Fiscal data are often not comprehensive



In a third of countries, there are considerable
differences between budget coverage and the
GFS definition of the general government
Budgets rarely provide information on
contingent liabilities, tax expenditures, or
quasi-fiscal activities
Only about half fully capture donor funds in the
budget in a timely manner
38
Third Key Feature: Improving Public
Resource Management/Accountability

Dissemination of fiscal information is at times
incomplete and subject to considerable delays



Most countries do not publish budget outturn
data on at least a quarterly basis
final audited accounts are provided to
legislatures with a substantial lag
A vigorous program of technical assistance
remains necessary
39
Fourth Key Feature: Poverty and
Social Impact Analysis (PSIA)

PSIA consists of the analysis—ex-ante,
during implementation, and ex-post—of
the positive and negative impact of
country policies on the well-being of the
poor and other groups.


May be defined broadly as instances where program
documents describe the potential effects of one or more
economic policies on the poor
May be defined strictly to include instances where a study
was undertaken to assess the effects of specific policies
40
Fourth Key Feature: Poverty and
Social Impact Analysis (PSIA)



Defined broadly: about 60 percent of PRGF
programs include some form of PSIA, more
so than under ESAF
Defined strictly: only a third of PRGFsupported programs included formal PSIA
PSIA has been widely absent in most PRSPs
in the sample, with the exception of
Mauritania and Uganda
41
Fourth Key Feature: Poverty and
Social Impact Analysis (PSIA)


Coverage of PSIA varies by reform. For some
reforms (e.g. taxation), a very small
percentage of measures are accompanied by
PSIA
Data limitations and weak national capacity
are important obstacles to more widespread
PSIA
42
Poverty and Social Impact Analysis (PSIA)
in PRGF-supported Programs and Countervailing Measures
(Percent of reforms covered by PSIA and Countervailing Measures)
PSIA
Countervailing Measures
Contractionary expenditure (13)
Revenue (22)
Trade and exchange rate (16)
Domestic prices (23)
Civil service (27)
Privatization (29)
Social (25)
Other (26)
Exogenous shocks (10)
0
10
20
30
40
50
60
70
80
90
43
Summary and Conclusion

A good start has been made



The composition of public spending is
shifting toward pro-poor activities
Higher public spending is accommodated
under the PRGF
Measures to improve the efficiency and
targeting of public expenditure
44
Summary and Conclusion

Progress has been uneven in other
areas




Reporting of poverty-reducing spending
Identification of contingent expenditures
Systematic poverty and social impact
analysis
Bolstering the revenue efforts in HIPCs
45
Summary and Conclusion

There is scope for deeper implementation



More extensive and effective communication with
government officials, development partners, and
civil society in countries with PRGF-supported
programs
Documents for PRGF programs should routinely
provide a description of the PSIA being carried out
Further capacity building to develop and assess
macroeconomic frameworks, analyze the profile of
poverty, and conduct poverty and social impact
analyses
46